The Market Made Me Do It

By: Don Randel

We hear a lot about markets these days. In some quarters they are the solution to all possible problems and should be freed from any kind of regulation. In some other quarters the dominant theme is their historical inability to provide equitably for much of society. The case of higher education in the midst of this often cacophonous public discourse rarely calls forth a nuanced understanding of the issues. On the one hand, the public most often fails to understand what a relentlessly competitive business higher education is—competitive for talented faculty and students alike in ways that drive costs and put one too much in mind of the National Football League or the National Basketball Association. On the other hand, it is in the nature of these, let’s call them “businesses,” to claim to know more than their customers do about what their customers ought to want to purchase.

The principal attention to higher education at the moment, aside from the many state governments intent on reducing resources for it, seems to come from a horde of prolific critics eager to point out its many failures and to assign blame. It would not be possible here to take up individually any significant number of the books of this type that have recently appeared. But several themes run in and out of them. Two features of the dominant themes appearing in various combinations are simple-mindedness with respect to the nature of higher education as an enterprise and nostalgia with respect to some imagined golden age of higher education in the past (often a golden age coterminous with the period in which the author was him- or herself an undergraduate at one of the nation’s elite institutions). Both make it easy to assign blame to one or a few parties for current “failures.” The “failures” tend to be of two types: higher education costs too much, and the students aren’t learning anything. The blame is placed primarily on the faculty and secondarily on craven college and university administrators who capitulate to the faculty and grow their own numbers, all the while demanding higher and higher compensation.

All of this makes good newspaper copy in an age of increasing discontent. But a more nuanced understanding will be required if the long-term future is to be addressed. And the stakes are very high. Higher education, as an issue, has many of the features of health care. Unfortunately, the character of our current debate about health care does not inspire confidence in our ability to have a productive discussion of higher education. But the price of failure cannot be borne in the long term in either case.

The cost of higher education

Does higher education cost too much? Is this cost rising too fast? Who is bearing this cost, and who ought to? The answers to these questions require in the first instance a refined analysis of what higher education does in fact cost and what are the components of that cost in the rather different types of the 4,500 institutions that attempt to provide it. The averages that are often cited obscure much more than they reveal. The simplest and most obvious example of this mixes together the increased rate at which tuition in public institutions has risen in response to reductions in state budgets and on a rather low base with the slower rate at which tuition in private institutions has risen on a much higher base. Even this distinction, however, does not ultimately clarify the issue, for the very notion of tuition itself requires clarification. Tuition certainly does not begin to represent the full cost to the institutions. It is more nearly the advertised price to the consumer. But in most institutions, the price actually paid by consumers varies substantially because of both internal and external subsidies or “discounts.” It is probably safe to say that there is no nonprofit institution in which the consumer is paying the full cost of operating the institution, even if the consumer pays full tuition. This leads directly to the fundamental question to society—what should the consumer pay, and who should make up the difference between that amount and the full cost?

This, in turn, brings us back to the question of the actual full cost of higher education and its principal drivers. The components of this cost vary widely across the different types of institutions. This fact, however, does not prevent the critics from making blanket statements blaming the problem of cost on the faculty. Specious calculations are made showing that the faculty hardly works at all, devotes too much time to research rather than teaching, and has tenure and therefore cannot be obliged to change its wasteful habits.

Whatever one believes about the institution of tenure as a protector of academic freedom, tenure is clearly not a driver of costs in higher education because tenure is steadily being eroded. Recent studies show that only about 50 percent of the faculty in higher education hold tenured or tenure-track positions. And of the total amount of instruction being carried on, only about 20 percent is given by such people. This is the result of the increasing use of contingent faculty—instructors with short-term or part-time appointments, often at very low wages with no benefits. Whether this substitution of cheap labor for more expensive labor is the best way of reducing costs is a serious question. In any case, tenure is not preventing it in many institutions.

Research is a favorite subject of complaint, hyperbolically represented on occasion as the snake in the educational Garden of Eden. Here it is absolutely essential to distinguish among the types of educational institutions and among the types of research, if any, that are carried on in them. The easiest type of research to identify is research in the physical and biological sciences that is sponsored by the federal government or by the corporate world, though the latter has declined significantly in recent decades. The simple fact, of course, is that the vast majority of our 4,500 institutions of higher education conduct no such research at all. Even less well understood is that the federal government does not pay the full cost of the research that it sponsors in universities and that the universities themselves make up the greatest share of the difference. Some of these costs, especially the cost of major new buildings, are borne in part by generous donors, often alumni. Nor does the federal government pay the full cost of administrative and other infrastructure or the cost of compliance with federal regulations. In most fields outside of the biomedical sciences, the federal government pays none of the academic-year salaries of the faculty members who carry out the research. A thorough account of all the costs and sources of support for this research would reveal a substantial contribution from undergraduate tuition, especially in the private research universities but increasingly in the public universities as well. That is to say that the cost of federally sponsored research is indeed one of the drivers of the cost of higher education that is recovered in part through tuition in research universities. It is thus disingenuous of the architects of the federal government’s budget to reduce steadily the degree to which the government pays the full cost of research while complaining about increases in tuition.

None of this is to say that the nation does not need more and better scientific research or that universities are not the places in which to conduct it. The arguments for both are powerful. It is to say only that the nation must confront directly the cost of the scientific research that it should carry on and not expect that research to be covertly subsidized by undergraduate education, about the cost of which it wishes to complain. It must also be said that the private sector cannot be counted on to play a significant role. Not only has the corporate support for research in universities declined; the corporate world has systematically dismantled its own capacity for basic research, despite its storied history.

There are, of course, other kinds of research, and there are very many institutions for which research of any kind, as usually understood, is not a core mission. A fuller account of the place of research in higher education must begin by doing away with a too simple opposition of teaching and research. This requires first of all a much broader understanding of the term research, one that would make clear its essential relationship to teaching of the kind that matters.

To say that the principal problem with undergraduate education is research is to consign undergraduates to the mere memorization of what earlier generations have thought and said. This cannot be the basis for educating a citizenry that will prosper economically, politically, intellectually, or—one might dare even to say—spiritually. The research instinct should be a part of the life of everyone, whatever their occupation. Human beings are born with this instinct, and it should be nourished at every stage of their lives. It is easily associated with explorations of the physical world, as when a child turns over a rock or speculates about what might happen if this color is mixed with that. But society does a great deal to suffocate this instinct, and it often entirely neglects that instinct in relation to matters that lie beyond the physical world. Many of the methods that purport to gauge “learning outcomes” fail utterly to capture what might best be meant by learning, which is what lies at the heart of research broadly conceived.

Productivity and efficiency

If we grant that research is not the problem but, properly defined, is instead crucial to the solution, we must still confront the appropriate combination of ingredients in the lives of faculty members and students alike. This leads quite straightforwardly to the ratio that lies at the heart of the economy of all institutions of higher education. How many students per faculty member can an institution support while responsibly meeting its obligations to both parties? This is to ask the productivity question.

The answer to this question will depend on what the product is thought to be. The product is surely more than some target number of undergraduate degrees per unit of time. The product of higher education across all institutions, though it differs across types of institutions, must include not just certificates and degrees but genuinely thoughtful undergraduates as well as advanced and professional graduates, research in the national interest and for its own sake, and service to society of many kinds. Holding the means of production (that is, the faculty and staff) constant, we could of course increase the productivity of some product lines by decreasing production in others. But let us say that we could come to agreement on the right “product mix” for higher education. Are there methods by which we could increase the productivity of the enterprise as a whole and in the process constrain the growth of costs to a rate at or below that of the economy in general? Could higher education be more efficient?

The short answer is “yes.” In leading universities in the 1960s, the typical assistant professor in the humanities taught three courses per semester. Today such a person might teach two courses per semester, with periodic opportunities to teach fewer for the sake of devoting more time to research. Teaching duties in the natural sciences and in some of the social sciences started lower and were reduced faster. This implies that we could increase the efficiency or productivity of higher education simply by returning to the practices of fifty years ago. Of course, this reduces costs only if we reduce the number of faculty or increase the number of students. Similar things might be said about nonacademic staff, though it would simply not be possible to reduce the number of staff in information technology to what it was in the 1960s, and the same would need to be said about some other staff, such as those that attend to compliance with government regulation and to the needs of students with disabilities and so forth, all of which have grown substantially.

Then what? Sooner or later, increases in productivity will begin to decline and reach a limit—if we believe that in an education worthy of the name there must always remain some core of direct human interaction. There is no disruptive technology that will take the place of a grownup asking a young person to write about something of substance and then sitting with that young person, challenging him or her to observe more acutely and to frame a stronger argument in support of an original idea. This is an activity that must be undertaken thousands of times every day all across the country if we are to develop the minds that will ensure the nation’s welfare in every sense. It has not been a feature of the educational systems of some countries with whom we now begin to compete. Some of these countries are now beginning to recognize this difference and are attempting to incorporate the US style of education even as we begin to see it weaken.

This kind of education is expensive on a per student basis because it requires attention to students one at a time, and after a certain point it is not subject to productivity gains. Higher education is not alone in confronting such a fact. For example, the cost of dentistry has gone up at essentially the same rate as the cost of higher education. The simple fact is that there is a limit to how many mouths a dentist can put his or her hands in on any given day. The cost of lawyers has often risen even faster, perhaps, one might say, with rather less justification, and yet Congress has not been heard to call for hearings on the rising cost of legal advice.

Affordability and access

How then can higher education be afforded? This will require thinking about the entire system of higher education and the variety of kinds of education that it provides. Let us imagine some total number of seats for students in the system. Elements of liberal arts education—the research instinct properly defined—should be present for every one of those seats. But for reasons of talent and inclination, only some fraction of those seats will be needed for the deepest and most expensive kind of education. There will also need to be seats for many other kinds of education in the professions and the trades, many of which will be much less expensive. This begins to sound like rationing, and this may remind us of the debate about health care. But the only solution to the problem of the cost of higher education will entail coming to conclusions about how many students get what kinds of education, and how to achieve the right balance among the most and least expensive forms of it—all the while ensuring that every student has access to the highest educational attainment of which he or she is capable. De facto, there will be rationing and cross- subsidies, but this need not impede access.

Any educational system that is to provide the whole range of the types of education that are needed and that aims simultaneously to enable every student of whatever socioeconomic background to reach his or her full potential and not be prematurely consigned to an education that will foreclose on their reaching that potential will require income redistribution. “Income redistribution,” however, is a toxic phrase in the United States at the moment. In a country with a tradition of the most generous philanthropy anywhere in the world, there is still a strong Calvinist streak that asserts that the poor are poor because they deserve to be. But there is no way around taking money from people and businesses that have it in order to provide for people who do not have it and to provide those essential services for which not everyone can afford to pay a strictly equal share.

The question is not whether it will be necessary to engage in income redistribution, but rather how it will be done. The most obvious method, of course, is through the tax code. For higher education, the limiting case on one extreme would be to fund fully the system of higher education through an appropriately progressive tax structure and then impose no charges on students. This has traditionally been the system in most other developed countries. On the other extreme, one might provide little or no government funding and let individual institutions charge students whatever they need to charge in order to cover their costs as well as to provide for students unable to pay the “full” cost. That is, each institution would redistribute income in its own way, charging the well-to-do enough to be able to accommodate those students who can only afford to pay much less. A system in which 4,500 institutions are left to do this, each in its own way, each with its own degree of commitment to access, and each with its own abundant or very limited resources for financial aid, is at a minimum an incoherent and inefficient system. It certainly leaves no one charged with thinking about what is in society’s collective interest.

Yet this is precisely the sort of system toward which the United States has long been tending, and the tendency is now quite advanced. A few truly wealthy institutions, of which there are not really more than four, can afford generous financial aid for less well-to-do students that comes from gifts and endowment income rather than directly from some fraction of the tuition of their wealthier classmates. But virtually all other institutions, including some of the most prestigious that are sometimes accused of being rich, redistribute some fraction of their tuition revenue from the more well-to-do to the less well-to-do in the form of financial aid. That is, they charge those who can afford to pay it an amount large enough to enable them to charge others much less or even nothing. This is sometimes described as discounting, and every institution undoubtedly worries constantly about how large a discount rate it can afford. Public institutions are more and more engaged in the same practice as support from their states has declined—witness, for example, the practice of charging out-of-state students more than in-state students. The full price of an education at Berkeley or Michigan for a student from out of state is now within about $2,000 of the price at Harvard, Yale, or Princeton. And Michigan, for example, now has a student body in which 30–40 percent of the students come from out of state. The logical conclusion of this trend in the solution of the financial problems of public universities—problems brought on by their own states—is that in the future all state universities will accept only students from other states.

This trend is simply not sustainable for many institutions in the system, public or private. At some point they run out of enough wealthy students from whom they can do the redistribution. They then become more and more institutions primarily for the wealthy, or they go out of business. There will always be enough wealthy families to support some number of the best institutions, though since academic ability is not uniformly distributed across such families, the average quality of the student body of an institution accepting only the rich will in some ways decline. But a system in which only the rich have access to institutions of the highest quality, which can maintain their quality because they have the tuition payments and the philanthropic support of the rich, while everyone else is forced to attend institutions with declining resource bases is a system that will drive further income inequality, with all of its attendant ills. One might even say that such a system is immoral.

The value(s) question

Higher education is, of course, not only about money. At whatever appropriate cost as borne by whomever, it is supposed to provide lifelong value to the students and to society. Yet some critics now complain that in the current system, with its rising costs, students are not in general learning much if anything, and there is a good deal of data to suggest that many college students work rather little and are guided in the main by social rather than academic concerns. Whose fault is that? Once again, the faculty is often assigned the blame. If only the faculty cared more about their students and less about their research, all would be well, say the critics.

Here we encounter the curious view that higher education needs to be subjected to more market discipline if it is to survive and improve, as if the market for higher education had not made higher education what it is. Higher education exists in a very competitive market for the talent of both faculty and students. Yet a familiar complaint about colleges and universities is that they do not know their customers and respond to their wishes. Colleges and universities have changed steadily in response to the wishes and inclinations of students and their parents, often in ways that are then lamented by the critics who claim that higher education costs too much and that students are not learning anything. The institutions that have built elaborate recreational facilities and food courts and other amenities so often complained about by the critics have built them not because the faculty or even most administrators thought them essential to an education of high quality. They have built these things because the market has demanded them and has been willing to pay for them to some degree. The faculty, meanwhile, faced with a good many students (and some of their parents) who complain about their grades and who relentlessly choose courses with little assigned reading and no assigned writing, may very well come to feel that the rewards (not monetary, to be sure) for doing research and debating it with their colleagues are somewhat greater than for teaching undergraduates.

If we wish to know what is wrong with higher education in the United States, we will need to recognize that its current state reflects many things about our culture of which we cannot be proud. It means recognizing that the consumers, aided and abetted by U.S. News & World Report and its foolish rankings, are a significant part of the problem. All of the incentives in these rankings are for institutions to spend more rather than less and for students to choose a wealthy institution over one that is less wealthy, quite independent of what might be the educational quality of the experience. It plays, as so many things do, to the national enthusiasm for professional sports, where teams and individuals can be ranked in some true and immutable way. These rankings are valuable only for the purpose of selling magazines to a gullible public. If we care about the quality of higher education, we shall need to spend some time thinking about how young people (and their parents) come to have the values that they have and how certain values might be strengthened as opposed to others. This is work that must begin in the cradle.

What we must absolutely do is break out of the kind of marketplace and sports-like competition into which we too often allow ourselves to be forced, for the terms of the competition are overwhelmingly corrosive of what ought to be our values. The first responsibility of higher education is to the improvement of the lives of all our fellow citizens. This means, to be sure, the improvement of the economic circumstances of individuals broadly. But it also means the improvement of their intellectual and creative lives. All citizens have the fundamental human right to realize to the fullest extent possible their capacity for a rich intellectual life and for the exercise of their creative gifts. Meeting that responsibility in any given institution has absolutely nothing to do with where that institution stands in the rankings of federally sponsored research or the ratio of applicants to available places or the yield on the applicant pool, to say nothing of any ranking remotely associated with the NCAA. It makes absolutely no sense for each of fifty or more presidents or chancellors of state universities to assert that his or her institution will climb into the top ten research universities in the nation or the world or the galaxy by 2020. It makes even less sense for hundreds of liberal arts colleges to aspire to climb in the national rankings based on the criteria that are generally applied. For example, an institution that says it wishes to have higher average SAT scores so as to climb in the rankings says principally that it wants students with higher family incomes. And when it spends scarce resources for the purpose of recruiting those students, it makes a meaningful contribution to rising income inequality.

Each institution needs to think about and act not on its value proposition, as they say in business, but on its values proposition. How will it do right by the people it exists to serve? For some institutions it may well mean succeeding in the competition for NIH or NSF funding on a national basis, but only if that does not mean failing to do right by every student who comes with the desire to learn and grow intellectually. Indeed, those two goals must always be seen to be of a piece. Above all, the allocation of resources must be based first and foremost on an institution’s own values and not on the values of an imagined marketplace or of magazine and newspaper editors in faraway cities and countries or even, in many respects, on the preferences of eighteen-year-olds and their parents. In this respect, so-called responsibility centered management—in which each academic or nonacademic unit of the institution is thought of as a profit (or loss) center, and resources are allocated to the most “profitable” based on student demand or the ability to generate resources from outside the institution—leaves values, properly so called, and educational principle entirely on the margins.

It will not always be easy to resist certain political and economic pressures or the pressures of popular culture that one ought to resist. But when it is not possible to resist them, it should not be because nobody knows that they ought to be resisted in light of one’s values. This will require individual and institutional courage of a kind that the nation desperately needs. Our national life is at stake.

Don M. Randel is president of the Andrew W. Mellon Foundation. This article was adapted from the keynote address to a luncheon cosponsored by the American Conference of Academic Deans and held during the 2012 annual meeting of the Association of American Colleges and Universities.

To respond to this article, e-mail liberaled@aacu.org, with the author’s name on the subject line.